Toys R Us advisors Lazard and Kirkland & Ellis have been holding talks with restricted investors about raising new financing for the distressed retailer, said four sources familiar with the situation. The company’s foremost aim is to net a rescue financing package -- proceeds of which could be used to take out 2018 maturities -- but executives are also on the hunt for a sizable new-money DIP to fund a potential bankruptcy filing, they said.

Meanwhile, as the company attempts a turnaround, Toys has been interviewing operational advisors and is close to bringing in Alvarez & Marsal as CRO, said two additional sources.

Toys faces USD 444m of maturities next year, split between a USD 49m French propco facility due February; a USD 124m Libor+ 375bps (1.5% floor) TLB-2 due May out of Toys Delaware; a USD 62m L+ 375bps (1.5% floor) TLB-3 due May out of Toys Delaware; and a USD 209m 7.375% holdco note due in October. Then in 2019, Toys has USD 2.6bn of debt, and another USD 1.36bn maturing in 2020.

The company is sizing up investor appetite for the amount and pricing of new secured debt that it could raise, one of the sources specified. Lazard has targeted both prospective new investors and existing investors – including bondholders that sit at its international subsidiary Tru TAJ LLC – to get restricted, sources said. As such, proposals for rescue financing are aimed at TAJ, given there is excess collateral sitting at the silo, added one of the sources. Management also has long-targeted the prospect of using its Asian assets as a cornerstone for raising new secured debt.

Alternatively, the size of contingency DIP financing proposed by advisors to certain third-party and existing restricted funds is around USD 400m, said one of the sources and an fifth source familiar.

Toys earnings have been under pressure, raising the question as to whether the company can pull off an out of court restructuring. In 1Q17, Toys reported a consolidated same store decline of 4.1%. Adjusted EBITDA in quarter was nearly halved to USD 44m, versus USD 79m in the prior year period.

Currently, the newly formed international subsidiary Tru TAJ LLC is levered 3.6x, making it the least levered entity in the complex. Meanwhile the Delaware entity carries the most leverage at 9x.

For their part, holders of the USD 575m 12% secured notes due 2021 at Taj have been organizing with advisor GLC, according to two additional sources familiar. The tranche was born last year out of negotiations former holders of a 2017 Delaware holdco bond who worked to swap into new debt at an entity with a more direct claim to international assets, long viewed as the company's growth spigot.

But now that the company is once again running up on near term maturities out of Delaware and other entities, Taj holders find themselves at risk of being the pawns on another liability management maze of international proportions, the two sources noted. One incentive the Taj holders have for participating in new Taj financing to takeout the near term Delaware lenders and bondholders is the chance to demand that the company, in return, strengthen their indenture, the sources added. Only around half of Asian asset monetization proceeds are owed to Taj bondholders under the current indenture.

From the company's side of the negotiating table, management is incentivized to pressure near term Delaware lenders and bondholders to accept a haircut in order to limit financing needs and also head off the potential for a standoff with Taj bondholders, both sources continued

As of 1Q17, the consolidated borrower had USD 701m of liquidity, comprising USD 301m in cash – mostly held overseas – and USD 400m of availability under committed lines. At Toys Delaware, the company had USD 35m of cash and USD 176m available in credit lines.

The borrower’s USD 209m 7.375% senior bonds due 2018 changed hands today at 79 to yield 31.467%, compared to 95 on Tuesday, according to MarketAxess.

The near-dated bonds plummeted yesterday after a CNBC.com report that Toys had hired restructuring counsel at Kirkland

Toys provided Debtwire with the following statement: As we previously discussed on our first quarter earnings call, Toys“R”Us is evaluating a range of alternatives to address our 2018 debt maturities. We expect to provide an update about these activities, as well as the many initiatives underway to provide an outstanding customer experience in our global retail locations and webstore during the holiday season, during our second quarter earnings call on 26 September.